Is Bank of Queensland stock a buy for its 9% dividend yield?

Bank of Queensland Ltd (ASX: BOQ) stock has taken a bit of a dive over the last six months, falling by more than 15%, as the chart below shows. Investors may like to know that the ASX bank share is predicted to pay a large dividend in the coming year.

Dividends shouldn’t be seen as the sole source of returns, but they can form an important part of total shareholder returns, particularly for banks.

As one of the smaller challenger banks, BOQ usually trades on a lower price/earnings (P/E) ratio than its major peers, making its dividend yield look particularly appealing for yield hunters.

Let’s take a look at how large the dividend payout could be for investors in FY26 and the outlook for better payments in future years.

Potential payout in FY26

Analyst projections are not guarantees of what dividends a business will pay, but I think the estimates are a useful guide of what the payout could be. Some companies decide on their payout size based on a particular dividend payout ratio.

The analysts from UBS think the bank could deliver a payout that equates to a dividend yield of 6.3%, or around 9%, including franking credits, in FY26. That’d be a very pleasing level of passive income from the bank.

The payout could be similar in FY27, with another grossed-up dividend yield of around 9%.

UBS forecasts that BOQ’s grossed-up dividend yield could be around 10% in FY28 and 10.4% in FY29.

If those payouts do occur, then owners of BOQ shares could be in line for a lot of passive income in the next few years.

Is Bank of Queensland stock a buy?

The broker notes that management is focused on tilting the business towards commercial lending, with strong growth over the past 12 months, growing at 1.5x the speed of the overall loan system.

UBS said that BOQ’s underlying cost growth is projected to be below inflation. On top of that, BOQ’s franchise network conversion into a corporate-owned proprietary channel which aims to streamline distribution and drive new business through its own channels.

Currently, 60% of BOQ’s business flow is through broker channels, predominantly from ME Bank.

However, deposit competition is increasing as system loan growth is stronger than expecting, which may be disadvantaging smaller banks.

Digital growth remains a priority for the bank, with 44% of retail customers now using the digital banking platform.

BOQ is proactively resizing its cost base and exiting loan costs, that are below the cost of equity which are on the balance sheet, to reset its economics.

The broker said that the ASX bank share re-entering the mortgage market in FY26 and FY27 will be a “litmus test, especially around growth and pricing in proprietary distribution.”

UBS currently has a sell rating on Bank of Queensland stock, though the price target of $6.75 implies a slight rise during 2026, at the time of writing. The bank is trading at 11x FY26’s estimated earnings.

The post Is Bank of Queensland stock a buy for its 9% dividend yield? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.